Business Cycle Monitor: Recovery Moderating‏

Global leading indicators tapered off in March, as PMI for the Euro area fell surprisingly, and the U.S. ISM saw a stronger-than-expected fall. However, the negative contribution was offset by improvements in the Asian PMIs. The data suggests recovery is intact, but still fragile and patchy.

The outlook for the global economy is a continued soft path for the next couple of months. We expect the U.S. ISM to go sideways for a couple of months before rising further over the summer, as the underlying economy is gaining strength. The euro area remains the weak link and we expect only a gradual rise in activity indicators and business surveys. Chinese PMI should rise a bit further.

Details
Global PMI new orders increased slightly from 51.5 to 52.1 in March. We expect the index to be in this area for some months.

Manufacturing ISM in the US fell significantly this month, as it fell back from the last month’s rise. The index fell by 2.9 points to 51.3. It suggests the US may see a slight soft patch in Q2 following a stronger-than-expected start to the year.

The euro area, particularly France disappointed in March, as manufacturing new orders PMI fell from 47.9 to 45.3. In Germany, ifo expectations have been increasing for some time but showed a marginal decline in March, breaking the positive trend. Scandinavian PMIs were generally positive, as both Norwegian PMI and Danish manufacturing confidence improved, albeit slightly. Swedish PMIs are still well below the Scandinavian average, but continue to increase and reduce the gap.

The HSBC manufacturing PMI rebounded in China and went from 50.4 to 51.7, confirming that the weakness was caused mainly by the Chinese New Year. Japan continues its positive path, as PMI new orders rose substantially. The CEE countries send mixed signals, with slightly increasing PMIs, but industrial production is on a downward trend.

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